Will DISH Merge With DTV? Don’t Count On It

By Eric Savitz

The Wall Street Journal whipped up a speculative frenzy yesterday with a story that said Dish Network (DISH) CEO Charlie Ergun was thinking about making a new attempt to merge his company with DirecTV (DTV), potentially creating a monopoly in satellite television services.

This idea has cropped up repeatedly in the last year, on the theory that government approval for the merger of Sirius (SIRI) with XM could signal a new willingness on the part of regulators to re-consider their rejection of a DISH/DTV merger in 2002.

But there is reason to doubt that the FCC and the Justice Department would be any more willing to approve such a deal now than they were six years ago, when they rejected a proposed merger of the two on anti-competitive grounds.

In a research note this morning, Collins Stewart analyst Thomas Eagan downplayed the prospects for a merger of the two satellite TV players. He notes that the competitive issues are not the same. Eagan notes that “the vast majority” of rural U.S. households rely on satellite TV for multi-channel television. A merger of DISH and DTV, he notes, would reduce their choices down to one. That, he says, is “a prohibitive situation.” Eagan contends that the situation has not changed with the entry of the telcos into the TV business, since they have focused almost exclusively on roll-outs in urban and suburban areas.

Moreover, he says, the February 2009 digital conversion “exacerbates” the concerns a merger of the two would raise, since many of the 13-15 million antenna-only over-the-air TV viewers are rural. “Following the conversion, these viewers will either need digital antennas or need to become pay TV subscribers” to gain access to TV, “making a significant portion of U.S. viewers vulnerable to a merged satellite TV sector.”

Writes Eagan: “We believe the last thing the FCC wants to do is derail the highly anticipated (and politically charged) digital conversion.”

DISH, which rose $2.07 yesterday, gained another 18 cents, or 0.6%, to $30.16 in Wednesday’s session.

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